Chief defuses bomb in Bumi’s backyard

Nick von Schirnding recalls a bruising first year in charge of the troubled
Indonesian miner

Whatever happens to Nick von Schirnding in 2014, it will be difficult to match the drama that began last December when he stepped up from executive committee member to chief executive at the London-listed Indonesian coal miner Bumi.

Trouble was already rife between its management and Nat Rothschild, the financier whose cash shell Vallar had formed the business by buying holdings in Indonesian thermal coal producers PT Bumi Resources and Berau Coal.

Rothschild, the Indonesian Bakrie family that held 23.8pc of Bumi and Rosan Roeslani, the previous boss of Berau Coal, had left the board. Rothschild had also gone public with criticisms of the previous management and a call for a “radical cleaning up” of PT Bumi Resources.

“The defining moment was when Nat disclosed publicly his dissatisfaction,” recalls Von Schirnding. “I remember saying to him at the time: 'You push this ball down the hill and you don’t know where you’re going to end up’. In Indonesia, losing face is a key issue. The board was furious.”

On his first day as chief executive, Von Schirnding arrived at Bumi’s London offices to find a petition from Rothschild. Using his 15pc equity holding and 20pc of voting rights, Rothschild had requested an extraordinary general meeting to remove Von Schirnding and the board.

“It was a bruising first day at the office,” recalls Von Schirnding. “Suddenly I was not only looking after the day-to-day mess I had inherited but also now defending a blitzkrieg and a very well-run campaign. It was a firestorm raging through the building.”

Rothschild’s motion was defeated and the board set about seeking to sell the PT Bumi stake and secure the withdrawal of the Bakries as shareholders.

However, a comprehensive review then uncovered financial irregularities in Berau Coal. They were significant enough that the board asked for trading in its shares to be suspended.

“The suspension dragged on for three months and I was coming under a lot of pressure from some of our major institutions,” says Von Schirnding. “The figures were enormous.

We found $201m (£121m) of mainly capital expenditure that had no clear business purpose. We don’t know where it went. We’re trying to trace the money. It went out through quite a sophisticated scheme.”

EY carried out a review, while Bumi’s auditors, PricewaterhouseCoopers, helped in the investigation.

“The amount of work we did was enormous,” says Von Schirnding. “We’ve got a cost base of more than $1bn. We wrote to every single one of our major suppliers and contractors. It was a massive logistical exercise.

"The skies did turn very dark. We had come through a bruising extraordinary general meeting [EGM} only to find this massive hand grenade or bomb in our backyard.”

Criminal and civil proceedings stemming from the investigations are ongoing in Indonesia and the UK.

The Bumi board, meanwhile, secured a commitment from Roeslani to retrieve some of his funds with no apportioning of blame and he signed an agreement to ensure $173m is repaid by the end of 2013.

Roeslani, who owned 10pc of Bumi but sold all his shares at the end of last year, has missed the first deadline to pay a sum of $30m.

A problem with the strategy to remove the founding shareholders was that Bumi’s previous board had signed an agreement with the Bakries which gave them the nomination rights for chairman, chief executive and chief financial officer.

However, earlier this month, another EGM, the fourth this year, agreed effectively to unwind the purchase of the PT Bumi stake from the Bakries.

Bumi’s outgoing chairman, Samin Tan, an Indonesian entrepreneur, is buying the Bakries’ 23.5pc stake in Bumi for $223m. The Bakries are paying $501m to buy Bumi’s 29.2pc stake in PT Bumi Resources, leaving Bumi, now renamed Asia Resource Minerals, wholly focused on 85pc-owned Berau Coal. About $400m will be returned to shareholders.

The deal needed shareholder approval, secured earlier this month after a rapprochement between the company and Rothschild.